This copy is for your personal non-commercial use only. To order
presentation-ready copies of Toronto Star content for distribution
to colleagues, clients or customers, or inquire about
permissions/licensing, please go to: www.TorontoStarReprints.com

All of Canada’s major banks ‘too big to fail’: Goar

The phrase “too big to fail” can still induce a shiver five years after the financial meltdown that tipped the world into a recession.

Ostensibly the banking system has been stabilized. New safeguards have been developed. The U.S. lenders who triggered the crisis have settled most of the lawsuits flowing from the collapse of the mortgage market, the freeze in corporate credit and the loss of shareholder value. Canada’s big banks, praised as the healthiest and best regulated in the world, are churning out record profits.

So it came as a surprise last week when Superintendent of Financial Institutions Julie Dickson designated the country’s six largest banks “too big to fail.”

The financial impact was minimal; the banks had to set aside an additional 1 per cent of their assets by 2016 to protect themselves and the Canadian economy against a sudden run on their deposits. All of them will be able to meet that requirement with ease. But the federal regulator’s words — “The measures we are announcing today are designed to limit the likelihood that a major bank would encounter distress or failure that could negatively impact the Canadian economy or taxpayers” — put to rest the notion that everything is back to normal.

A few blocks from Bay Street, that notion never seemed real.

The labour market hasn’t recovered from the recession. Numerically, Canada has regained the jobs lost in the recession, but the new jobs don’t pay as much as the old ones did, don’t come with benefits and don’t provide security. Many are short-term, casual or temporary. In post-recession Canada, a full-time worker can fall below the poverty line.

The economy hasn’t regained its strength. Forecasters expect it to eke out a 1.6-per-cent growth rate this year, provided there are no external shocks. That is not enough to get employers hiring, get businesses investing and get consumers spending. It is not even enough to stay ahead of inflation.

Household debt hasn’t gone back to pre-recession levels. The pace at which Canadians are borrowing has begun to taper off, but the average family still owes $1.65 for every dollar of income.

Parents no longer aspire to see their children do better than they did. In post-recession Canada, the best they can hope for is that their highly educated sons and daughters will eventually find steady work, build a career and achieve financial independence.

The real estate market feels unsettled despite bankers’ assurances that there is no housing bubble. A modest increase in mortgage rates could trigger a sell-off of suddenly unaffordable homes, driving down prices and forcing lenders to foreclose.

Even staunch defenders of capitalism are beginning to worry about how unbalanced the economy has become. The selection of Chrystia Freeland’s book Plutocrats: The Rise of the New Global Super-Rich and the Fall of Everyone Else as the winner of this year’s Lionel Gelber Prize wasn’t just a tribute to the Canadian author’s fine research and lucid writing. According to the five jurists — not a left-winger among them — the book was chosen “for its immediacy and authority about the future; the world that we must comprehend and hope to manage in radically new circumstances.”

If this is normal, it is a skewed and tenuous normal.

The probability of a bank failure in Canada is very low. Market analysts consider it too remote to take seriously. As far as they are concerned, the only potential consequence of Dickson’s directive is a slight drop in the profitability of the National Bank of Canada, the smallest of the Big Six.

Business reporters likewise downplayed its significance, assuring readers it was just a technical adjustment to bring Canada into conformity with the Basel III Accord, a set of banking rules formulated by global regulators in 2011. There was no cause for concern.

The trouble is, most Canadians don’t live in a world of well-capitalized banks, healthy corporate profits and shrinking government deficits.

Get more opinion in your inbox

Go straight to the heart of an issue with the Star's Opinion newsletter, featuring the latest from our top columnists and more.

More from The Star & Partners

More Opinion

Top Stories

Copyright owned or licensed by Toronto Star Newspapers Limited. All
rights reserved. Republication or distribution of this content is
expressly prohibited without the prior written consent of Toronto
Star Newspapers Limited and/or its licensors. To order copies of
Toronto Star articles, please go to: www.TorontoStarReprints.com